I
have been seeing more and more shortcuts with bookkeeping entry into the accounting system over the past few
years. Not only from internal
bookkeepers but also from professional bookkeepers as well. Is entering in the employers or client data
that much of a hassle to bookkeepers that it causes laziness, or is it just to get the job done quicker?
As a business owner, you need to ask yourself (or your clients) some
very important questions about how your bookkeeping data is entered into your accounting software.
- Do you know how much money you pay to all of your vendors?
- Could you print out a detailed listing showing the total amount paid to each vendor?
- Would that total amount include a lump sum or could you see how much you spent on a specific cost?
- Can your software print out all of the contact information for your vendors?
- Does your bookkeeper enter more journal entries to record financial transactions rather than tracking the actual transaction by payee name?
- Does your bookkeeper reconcile your business credit cards?
- Are your credit card receipts accounted for?
- Are your vendor hard files a mess and you can’t find anything?
An
enormous internal control weakness in the accounts payable function is not
tracking vendors in the accounting software.
This happens so often when the business uses credit cards
to pay for all of the business and personal expenses so that they can accumulate mileage or points from the
credit card company. When the bookkeeper
has to enter in hundreds of charges per month, they don’t seem to want to break
it down and enter the charge in as a credit card transaction by recording it to
the proper vendor. They tend to enter
the transaction into the bookkeeping system from the point of payment and group it straight to an
expense account without tracking who the expense was for. Realistically, this type of entry only shows
that XYZ Company paid $5,000 to American Express, yet $4,500 was to Builders
Supply for materials on a job site. This type of entry system does not allow you to see
how much of that actual payment made to American Express was paid to Builder Supply. Yes
it
may show that your supply expenses was $4,500, but it is lacking the
"to who and what for" information that causes the weakness. Not only is this system
an internal control weakness in your purchasing and accounts payable function,
it also prevents the business owner from being able to realistically review
their overall costs which would help in their bottom line.
When
payments are entered without tracing who the vendor is, this creates several problems.
- Potential loss on profits
- Tracking vendors that require 1099’s
- Tracking billing schemes or purchases with a shell company
- Overpayment on purchases
- Not confirming receipt of materials or merchandise.
The
solution is to require your bookkeeper to enter all vendor purchases properly so that you can track your total costs per vendor. Yes,
this will take
more time especially if you use a credit card to purchase everything,
but if your bookkeeper is efficient then it shouldn’t be that big of
a change in their productivity.
Make
sure your bookkeeper;
- Enters vendor purchases to a vendor account.
- Enters credit card charges properly
- Reconciles your credit card accounts
- Can print a vendor purchase detail listing at any giving time
- Provides you with a reconciliation approval form to confirm and verify payees
- Uses purchase orders for supplies and materials to compare what was actually billed or charged to your credit card as well as what you received.
Most
small business computer software is integrated with the credit card companies to
import the data directly into the computer system. If you have the ability to use this function,
do. It will save time for your
bookkeeper from entering in all of those meal expense receipts……….
Don’t
allow shortcuts or laziness to be an identifying factor in your bookkeeping
system, it is doing you more harm than good.
Julie A. Aydlott, CFE Business Fraud Prevention, LLC
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